Melrose Industries Share Discussion Threads

[meanwhile] 18/3/2018 17:23

On the GKN thread, there is a fellow shorting GKN, his reasoning is explained.

[gettingrichslow] 18/3/2018 17:19

Thanks both.

[meanwhile] 18/3/2018 17:05

gettingrichslow,

Same here, I know nothing of Halma.

[minerve] 18/3/2018 16:26

gettingrichslow

I'm sorry I can't help you with Halma. I would like to assist but know nothing about them.

[bukko] 18/3/2018 16:24

gettingrichslow

I see Melrose are the second most shorted share at the moment. Hilarious isn't it. :-)
Hard to understand with the recent rise towards the final offer share price basis.

I've given up trying to second guess these things.

[gettingrichslow] 18/3/2018 16:14

Meanwhile, yes in MRO's hands I think that's a realistic range of numbers over say 3 years. But not if it remains in GKN's hands. I suspect they would find a way to reduce margins further and send the share price back down towards 350p.
Minerve and Meanwhile, do you have any views on Halma? Apologies if I asked you that before but I'm about to make a sizeable further investment in them and I like to gather views of others to test against my own. I already know Yertiz is a big advocate of Halma, but do you two have a view?

[mayers] 18/3/2018 16:09

MEANWHILE

Best wishes for your "conundrum". I haven't heard any further comment on the politicians' stance (2884),as this may be relevant in the share price direction.
From your early golfing experiences and your Wordsworthian hikes you sound even more like an existentialist! I can't help but think your GP might not be in favour of the new Carlisle airport a la Stobart (STOB) :-)

getting

A la current golfing please watch your core temperature, lowering of which is thought to have an effect on immunity. Difficult to cancel engagements I know, but it isn't worth it. I'm sure HALMA would agree!

Best wishes

[minerve] 18/3/2018 15:51

Tesla’s market value of $55bn is about $2.3bn more than GM’s, though for every car it built last year the latter group produced 100 - FT

[meanwhile] 18/3/2018 15:40

Well Melrose must think it's worth 600p, as well as Pelham Capital, if the appropriate actions are taken. They are offering 460p + now a huge pension contribution and they hope to make a substantial profit for MRO holders when they sell of the bits. So 7-800p minimum value must be in their minds.

If they can do this, maybe a restructure under a lesser regime could bring 600p.

[minerve] 18/3/2018 15:11

'GKN worth 600p'

It can't have come from me as I don't make TP predictions or set TP for my investments.

[gettingrichslow] 18/3/2018 15:03

Minerve, “why?”, because it was booked and paid for over 6 months ago for 16 of us and no refunds whatever the weather. Re: those ‘GKN worth 600p’ quotes, that made me laugh, clearly the market as a whole disagrees!!

[minerve] 18/3/2018 11:47

MEANWHILE

I like the new wallet. Don't tell the wife where you keep it! ;)

You are in an ideal location for hiking.

[meanwhile] 18/3/2018 11:40

Minerve,

Steady on with the language, old chap. You are sensible enough to not need it.

I used to play golf as a young lad & young man and loved the outdoorness of it, the challenge, the exercise and the satisfaction of a good score.
The downside were the other people on the course, and those in the clubhouse, and what they call the 'etiquette'. I was constantly in trouble, particularly for playing on my own and being improperly dressed. I remember one aspect of the etiquette was that 4 old gits had priority over a single player. If you got behind 4 of these you were on the course forever.
I don't play now, just hike, for the peace and solitude.

Have you seen the updated photo of my wallet?

[minerve] 18/3/2018 10:55

"Meanwhile, I've been on the golf course in sub zero temperatures, constant snowfall and 35mph winds for 5 hours, only just thawing out now!"

Why?

[meanwhile] 18/3/2018 10:30

getting,

If not golfing again, see this section from the telegraph link in above post.

"Melrose’s hostile attempt to take over the maker of car and aircraft parts is building to a dramatic denouement. This weekend, two other major investors backed GKN. Sanderson Asset Management said: “We oppose the offer and welcome the board’s plan to sharpen GKN’s focus on aerospace.” Pelham Capital said: “The action taken by management justifies a value closer to 600p, which is not reflected in the Melrose offer.” Both are top shareholders.
Last week, a number of influential voices picked sides in the £8.1bn battle. Aviva came out in favour of Melrose. Then Airbus, GKN’s largest customer, said it would be “practically impossible” to give GKN new work under Melrose’s control.
On Thursday, Jupiter Asset Management sided with GKN managers".

If the bid fails on the shareholder vote, and with the support of these major shareholders, I think the GKN price would be well supported at current levels.
GKN would still have had a bid at 450p which was rejected, a new focus in the company and the promise of break-up. Everything's changed. They're never going to go back to 320p.

[meanwhile] 17/3/2018 23:31

getting,
Market capitalisation is £7.3B + £1B debt. Businesses valued at 8.3B The Dana deal is £4.4B, half way there.
Project boost will deliver something, not sure how much. Other predators are a support to price.

[gettingrichslow] 17/3/2018 23:21

Meanwhile, I've been on the golf course in sub zero temperatures, constant snowfall and 35mph winds for 5 hours, only just thawing out now!
"..but I can't see why particularly" - really? Performance before the bid was poor, the leadership team are weak and reactive so I can't imagine why anyone would be convinced by 'Project Boost', and we have no idea whether any other predators would come in. GKN price is way above pre-bid price so loads of room to slide further if MRO bid falters.
Thanks for link to Sunday Telegraph article.

[meanwhile] 17/3/2018 20:48

SUNDAY TELEGRAPH Alan Tovey, INDUSTRY EDITOR
17 March 2018 • 7:57pm
‘You have to question who is hostile to who,” says Simon Peckham, chief executive of Melrose. Peckham is, of course, referring to his firm’s £8.1bn bid for aerospace and car parts giant GKN, which has triggered the fiercest takeover battle the City has witnessed in a decade.
It’s a provocative point. Yet the 55-year-old is relaxed as he sets out his argument from the company’s Mayfair boardroom, where it launched the largest contested bid for a UK company since Kraft’s swoop on Cadbury in 2009.
Peckham says it boils down to this: GKN has been underperforming for ages and Melrose would be much better at running it. Melrose, with its record of buying struggling businesses, taking up to five years to improve them, then selling them for a big profit, is evidence of this.
“It’s not right that a management team, which accepts it is not doing a good job – and revolutionised how it looks at its business since we turned up – has the opportunity to bar someone else who says ‘We can do a better job’.”
Melrose says it will improve the performance of GKN's businesses, such as the aerospace arm CREDIT: BLOOMBERG
Peckham insists that Melrose always prefers to do deals in private on terms that both sides agree to. Any “hostilityR21; is from GKN’s management towards its own shareholders, he says. His case is that by fighting Melrose they are reducing their shareholders’ chances of owning a better business with different bosses.
A lawyer by training, Peckham makes it all sound very logical. Still, Melrose’s approach for the Redditch-based engineer has grabbed headlines, with politicians, unions, investors and the company’s pension scheme weighing in.
Melrose has been labelled a short-termist asset stripper whose plans for GKN will lead to major job losses, under-investment that will damage Britain’s industrial footprint, and wreck the 260-year-old company’s retirement scheme.
Criticism has been compounded by a £285m payout that Peckham and three fellow executives stand to share if they hit ambitious growth targets after the deal. “Greedy” and “fat cat” are the more polite things said about the quartet, with calls for such a huge amount to be invested back into GKN, instead of going to just a few bosses.
Peckham scoffs at the claims. “Some think we buy GKN and get handed a £285m cheque,” says Peckham. He emphasises his response. “It. Is. Not. True.” But the deal documents state that such a payout is possible.
To earn that amount, he counters, Melrose would have to “do the same amount of value creation in two years as GKN has done in 250 years – we’d have to have to add £6bn.”
Peckham explains he will get “nothing”; until GKN’s market value – currently £7.5bn – has increased by £1bn. Adding £6bn in two years is a tough target, but Melrose’s approach has sparked a 25pc surge in GKN’s share price.
Peckham is speaking on the day Airbus, GKN’s biggest customer, said it would be “practically impossible” to give the business new work if Melrose took over.
“I can’t tell you we weren’t disappointed,” says Peckham about the statement from Airbus’s plain-speaking chief operating officer Tom Williams. The Melrose chief says he’s due to meet with Airbus to “alleviate their concerns” and emphasise that his company is a long-term R&D investor.
However, he’s also somewhat puzzled by the news, pointing out that Airbus doesn’t ban private equity-owned companies from its supply chain. “That’s not to compare us to private equity,” Peckham is quick to say. “We don’t use their levels of leverage and we develop the companies we own.”
GKN wants to merge its Driveline car parts business, while Melrose wants to hold on to it CREDIT: GKN
Melrose’s track record speaks for itself, he claims, pointing to it sinking almost £500m into the other companies in its portfolio over the past five years. “Our point is that while we might not own a company forever, while we do own it we treat it as if we were going to own it forever,” he adds.
He dismisses as “utter rubbish” suggestions Melrose is over-egging its past investment levels. The numbers have to be verified under takeover rules, he points out. “We’ve never been asked by the Takeover Panel to clarify anything … that’s not the same for GKN,” Peckham says with a smile. “The short answer is we don’t fib.”
He takes another swipe at GKN with his assessment of its management. “I don’t think anyone – even GKN’s management – will argue that the company has been well stewarded,” Peckham says. He points out that just days after Melrose first met GKN in January, the company came out with a plan to improve the business. Peckham says GKN has gone from “don’t sell anything, we’ll improve … then it metamorphosed into sell powder metallurgy [a big division], sell Driveline now [its automotive arm], let’s keep aerospace [the other half].”
Initially, GKN talked about the potential for the automotive business, but now it is planning to merge it with US peer Dana. The proposal highlights GKN management’s “fundamental misunderstandingR21; of what shareholders want, he says.
“We could not believe how they structured the Dana deal,” says Peckham, referring to terms that will give GKN investors shares in a US company, something likely to result in a tax bill. “That’s if you are a small shareholder. They don’t care about them, they did not even say sorry.
“But for big shareholders, well, they knew a lot of their big UK shareholders cannot hold US shares. And they didn’t appear to care.” Peckham says GKN has “slowly but surely lost the support of UK institutional investors”. He goes further, saying GKN is “run by people who don’t have an owner mentality. They have a manager mentality.” Peckham points to Melrose’s management being the eighth largest shareholders in Melrose, saying it gives them “skin in the game”.
But how would Melrose do it differently?
He won’t be drawn beyond this, saying Melrose will “sit down with individual business and work out what that plan is, we can’t pre-judge it”.
GKN's parts are used in every other new car built worldwide CREDIT: GKN
He won’t rule out job losses. “We want to invest to improve productivity. Automation and mechanisation is part of that,” Peckham says, noting that 40 years ago GKN had 69,000 UK staff, and now it has 6,000. “You can try to protect businesses and say, ‘We’re going to prevent the world’s effects from getting to them’ but then all that happens is you lose the businesses. I’m not trying to be alarmist but part of being a responsible owner is you run it properly.”
Peckham says GKN is “very capable of going back to being where it should be if it had been run properly”, but it fundamentally needs a change of culture. Running a business responsibly also means taking care of the 32,000-member pension scheme, which has become a key point of the battle, with concerns over how to solve the £1.1bn deficit.
“The deficit grew up on GKN’s watch, it’s a problem they have created. That we don’t have big deficits, it is not a coincidence, we did something about it.” Yet, the scheme’s trustees are happy with GKN’s own plans but not convinced by Melrose’s pledges. Peckham says “we would write a £150m cheque on day one” but won’t go further. “There’s a process to be worked through with the trustees,” he says. “We will come to an arrangement that will make them happy. And if we can’t we will be able to explain publicly why we can’t and people can make their own minds up.”

[meanwhile] 17/3/2018 20:01

gettingrichslow,

It may be, as you suggest, that the market is ditching GKN in case the bid fails, but I can't see why particularly. I think at the current 427p they are a good buy.
If the bid succeeds GKN holders buying at 427p will get 1.69 MRO shares at 205p, 19p below current price.
If the bid fails, there is the Dana deal, project boost & the possibility of other predators coming forward for all or bits - enough I think to keep the price up.

On the matter of aerospace customers, I think it's interesting that Airbus are very much against while Rolls Royce seem, by press accounts, to be more relaxed.
Of course, RR might be a good buyer for the restructured Aerospace Division from MRO, and Airbus, as customer of both, might be placated somewhat by this prospect/promise.

[meanwhile] 17/3/2018 18:58

gettingrichslow,

I think we're saying much the same thing, yours by some sort of instinct, mine with numbers.
The difference between bid share price & GKN share price is currently 33p. Look for convergence, or divergence, which will indicate whether the market thinks Melrose will win, or GKN will win. (This is in the absence of other factors coming into play, of course, like another offer, or deal). Last few days has seen divergence, but from what position we don't know.
2 weeks ago, Melrose were hot favourites. The Times today thinks very finely balanced now.

[gettingrichslow] 16/3/2018 21:44

Meanwhile, sorry, long day in the office. Yes, you may well be right with your assessment but I prefer to sum it up like this. The bid may well not go through. It's likely to be close but it may not go through. So the market is thinking 'do I want to be sitting on GKN shares if this fails and their answer is a resounding 'No'. Little confidence in Project Boost/unconvincing CEO/poor track record over last few years etc etc. So they're baling out at well below the offer price in case it collapses, safe in knowledge that they're still getting 35% more than the average of GKN's share price in the 6 months before the bid. Nice return for something that they weren't anticipating. That's how I see it but would be interested in others views including yours Meanwhile. I've also decided to go even more heavily into Halma by the way but that's another story!!

[meanwhile] 16/3/2018 19:15

To add to my earlier post, buying GKN at this price is, of course, currently a cheaper way into Melrose, provided the deal goes ahead, than buying MRO shares.
You will need to put up more money for the same number of MRO shares, but you'll get some of it back (the 81p) on completion.

[meanwhile] 16/3/2018 16:35

gettingrichslow,

I've been thinking about this conundrum, in the absence of any other suggestions.
Current numbers are 460p bid and 426 GKN.
The market must see little incentive to buy GKN shares, even at a discount, on this basis, of 34p. I have some thoughts, 3 in fact, on this.
If you buy GKN now at 426p and the bid goes through, you get a little cash back but the rest in MRO shares of an indeterminate price when you get them. There might be a lot of dumping of MRO by current GKN holders in the early days and you may not get your money back for some time. MRO could fall to say £2 or less.
If you buy now and the bid doesn't go through, the GKN value reverts to Project Boost and possibly the Dana sale, both uncertain. If the price is now still buoyed a little bit by the MRO bid, then you might see a fall when the bid collapses.
There is unlikely to be a higher bid coming in to oppose MRO as this would already have been flushed out.

The reason for buying GKN now at 426p would be if you expected the bid to proceed and you were happy to hold MRO shares for the longer term. But if you thought that, you could just buy MRO now.

Does that make any sense?

[mayers] 16/3/2018 16:28

gettingrichslow

Thanks. A bit beyond me, I think in this complex but very interesting situation. Presumably the GKN fall denotes increased selling but I have no way of knowing actual figures. Granted that, one might argue that selling is prompted by a fear of a more substantial fall in share price should the Melrose bid fail - seems a bit too early to make that judgement however, unless we hear of action by the politicians. Rachel Reeves remained very critical of the bid when interviewed early this morning. Others here I'm sure may be better informed.

[gettingrichslow] 16/3/2018 15:55

Mayers, no problem, what is your take on why GKN price is well below bid price? Meanwhile needs numbers!!!!